Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Can You Beat the Market Investing Businesses With in 10x+ NTM Revenue Multiples? This week I saw the below tweet and it got me thinking - can you beat the market investing in software businesses at a >10x NTM revenue multiple?
Thanks for another thoughtful analysis. It seems overall that the market is kind of "fairly valued" at this point given historical comparisons. I wonder what the catalyst for higher multiples would be again - besides just lower interest rates.
I did a similar analysis back when many of the SaaS were trading at >20X NTM sales……results were not pretty. So there probably is some range of EV/NTM sales that makes future returns routinely sub-Index.
Curious if there were any common threads with the 50% of stocks that did NOT beat the Index once they achieved that 10 X NTM sales? That would be very interesting to parse out the upper 50% vs the ones that didn’t beat the NASDAQ. Any trends with that underperforming group vs the over-performing?
Last comment regarding the “multi-bagger” question…..harkens back to the bubble days. Given your data that only 33% achieved CAGR of 20%, those same 33% of SaaS stocks would take just short of 4 years to double (and that is not even discussing the 67% that didn’t hit that 20% CAGR). That is a “long time” from what previous SaaS investors had experienced when a single bag occurred in a month. Expectations from here likely need to be lowered from the recent historical norms…..but as you suggest, not lowered to the grave.
When the market makers decide it's over, it's over.
Thanks for another thoughtful analysis. It seems overall that the market is kind of "fairly valued" at this point given historical comparisons. I wonder what the catalyst for higher multiples would be again - besides just lower interest rates.
How can you evaluate all those SaaS companies that went public in the last 5 years?
Great write-up and thanks!
I did a similar analysis back when many of the SaaS were trading at >20X NTM sales……results were not pretty. So there probably is some range of EV/NTM sales that makes future returns routinely sub-Index.
Curious if there were any common threads with the 50% of stocks that did NOT beat the Index once they achieved that 10 X NTM sales? That would be very interesting to parse out the upper 50% vs the ones that didn’t beat the NASDAQ. Any trends with that underperforming group vs the over-performing?
Last comment regarding the “multi-bagger” question…..harkens back to the bubble days. Given your data that only 33% achieved CAGR of 20%, those same 33% of SaaS stocks would take just short of 4 years to double (and that is not even discussing the 67% that didn’t hit that 20% CAGR). That is a “long time” from what previous SaaS investors had experienced when a single bag occurred in a month. Expectations from here likely need to be lowered from the recent historical norms…..but as you suggest, not lowered to the grave.